Cryptocurrencies were a brave new system for our evolution from coins and notes to computers or digital transactions but as the Financial Times points out in this article, the system is inherently flawed and “is an object of speculation rather than a store of value.” This speculation has taken cryptocurrencies to dizzying heights and has resulted in the current crash. For those who prefer to steer away from the risks associated with crypto but want to take advantage of the enthusiasm for crypto that still exists, Future Forex offers an investment product called cryptocurrency arbitrage that produces investment returns no matter what the movement or volatility of crypto. CEO of Future Forex, actuary Harry Scherzer, explained to BizNews that their product isn’t an investment in cryptocurrency: it is an investment in a glaring market inefficiency, and for peace of mind, you could substitute cryptocurrency with avocados. It is about buying cheaper in another market and selling for more in South Africa, and annualised returns could be as much as 80% per annum. – Linda van Tilburg
Crypto Asset arbitrage is being heavily “under-looked” as an investment option
I think this investment mechanism is criminally under-looked by the average South African. I think the reason for that is because either they haven’t heard of it or even if they have, they hear the word crypto in there and immediately there’s a lack of credibility. But very simply, crypto asset arbitrage is simply the process of buying cryptocurrencies abroad and selling them simultaneously in South Africa at a profit. You can make a profit in doing so because the price in South Africa is slightly more expensive than abroad. It’s approximately 2 to 3% more expensive, which means that all Future Forex really does is facilitate the process of sending the money abroad, buying the crypto assets abroad, sending those crypto assets to South Africa and selling them in South Africa. We can do this over and over and over again using the same capital. So, if say, a client starts with R200,000, we can send that abroad, bring that back. And now let’s say it’s worth R205,000, then we can send that R205,000 abroad, bring it back. Then R210,000, and send it abroad; bring it back. And you can keep doing this over and over again in a cyclical nature, which is where the extremely strong returns come from.
You are not investing in crypto
Instead of holding the asset directly and hoping it goes up, all we’re doing is capitalising on a market inefficiency whereby the pricing of the same asset, for example, Bitcoin is cheaper abroad than it is in South Africa. So, by buying one side and simultaneously selling on the other, you actually have no exposure to that asset. You have no exposure to Bitcoin. It doesn’t matter if Bitcoin doubles in price or halves in price in the next 30 seconds, that’s irrelevant. You won’t take those gains or losses. The only thing you’re profiting from,is the price difference in various markets. What we’ve done to make this even more risk free: we hold dollars abroad and we hold crypto in South Africa to ensure that we can action everything immediately. As we send clients’ money abroad, we immediately buy the crypto abroad and immediately sell it in South Africa and therefore have no exposure to either crypto or currency fluctuations.
Arbitrage is not unlimited
Each South African can only take up to R11 million offshore per calendar year. It doesn’t matter how rich you are, it doesn’t matter how poor you are. It doesn’t matter. Any adult South African can take a total of R11 million rands. Now, as we know, 99.999% of South Africans aren’t going to utilise that R11 million allowance either because they don’t have the capital or they don’t have the willingness to send that much out the country. All we’re doing now is we’re saying we can use that allowance. It’s almost an asset. You’re given the ability to take R11 million out the country and we’re going to utilise that asset and monetise it for you. Let’s say as an example that you have used R2 million of your offshore allowance because you bought a Tesla in the US for R2 million. You still have R9 million to send abroad. What we can do is take as little as R100,000 and cycle it over and over and over and over again until we reach that 11 well, or that R9 million-rand cumulative cap. So, looking at someone who hasn’t used any of their allowance, if they give us, let’s say R200,000, they can cycle it 55 times, which will end up being a total of R11 million used, but still using the same money over and over again. So, to be clear, you definitely don’t need millions of rands to utilise your R11 million allowance. You need to use a minimum of R100,000 to utilise all of that and make returns of between R100 000 to R200 000 per year as a very low risk, high yield investment.
Using a reputable bank as a third party lowers the risks
Typically, the risks involved with crypto arbitrage should be the forex risk in that you send your money to dollars and maybe the dollar weakens over that time. The crypto risk is that you buy crypto abroad, wait for it to land in South Africa and can then only sell – and maybe crypto halves in price over that time. But both of these market risks have been fully eliminated from Future Forex investment solution because we’ve created a fully hedged solution, which, as I discussed earlier, means that as you enter into a trade, you already buy and sell crypto simultaneously, meaning that we have no forex risk, we have no cryptocurrency risk either. So, the market risks are completely removed from this process.
However, this isn’t to say that this is risk-free. Nothing in life is risk free. No investment in the world is risk free. The remaining risk in crypto arbitrage is a third-party risk, one whereby we use third parties like Mercantile Bank and we assume that they will deliver on what they say they will. If they don’t, we could be exposed. As an example, we might want to send money out at a certain exchange rate; Mercantile Bank for some reason doesn’t do it and then the next day it might be a different exchange rate and then obviously we will be exposed. However, in 10,000 plus trades, we’ve never had a single third party not fulfil that obligation. So, we find this to be a relatively minor risk, although it is one which has to be mentioned.
No regulation expected in near term to close ‘market inefficiency’
Everyone thought that this would close overnight, maybe in a month’s time, maybe in six months’ time. We’ve seen it around for a decade and the reason that I believe that it remains present is because of exchange control allowances, because South Africans can only take R11 million out the country and in order to buy Bitcoin, they don’t have to use their foreign exchange allowance. You can understand why South Africans are willing to pay a bit of a premium for Bitcoin. It’s because it’s an easy way to get the most out of Rands. So, effectively I think this first premium is somewhat at an equilibrium, which is a weird thing to say when there’s a market inefficiency, but I believe it’s at an equilibrium in that there’s a reason for it. That said, do I think it will last forever? Probably not. There’ll probably be some form of regulation that comes in, in maybe two, three, five, ten years, which basically either limits this or disallows it for whatever reason. So, until that point, the way I see it is let’s make hay while the sun shines, while South African are comfortable with this, happy with this and while it exists.
Playing open cards with the regulator and opted for accreditation with the Financial Service Provider
It’s probably worth my clarifying that this absolutely is legal. The South African Reserve Bank has a frequently asked question on their site which talks about buying crypto assets abroad and it quite clearly says that utilizing your SDA and FIA, which is the R11 million allowance, you are allowed to purchase crypto assets abroad. On top of this, when we apply for the R10 million allowance for our clients, which we do free of charge, by the way, no additional cost when we do this for clients; where it says “reason for expropriating of funds”, we say crypto arbitrage and they approve these applications. So, we’re very straightforward with the regulator. I mean, to amplify this, we’ve been optionally accredited as a Financial Service Provider (FSP). We didn’t have to do that for our operation, but we decided to do it to increase credibility. We’ve been audited by Mazars, who are probably the experts in South African crypto markets. So, we went to them and said, “Listen, we’d love to gain as much credibility as possible. Please audit us; can you let our clients and potential clients know that everything’s above board,” and that’s obviously been passed, which is fantastic. So yes, it’s fully legal. We’ve done everything in the eyes of the law and gone over and above in that regard.
Almost 2000 clients, 80% annualized returns … and it’s like buying avos
I’m on the fence with whether crypto should be valued more or whether this crash is just the start of something bigger and it doesn’t matter. We keep making money for our clients regardless. So, this isn’t a crypto investment. This is an investment in a market inefficiency, which is quite glaring. My team always laugh at me because I use avocados as an example quite often. If this had been avocados, no one would blink an eye. Imagine if avocados cost more in South Africa than abroad and all we were telling people is you’re buying others abroad, shipping them and selling them into South Africa, people would immediately say: “Oh, that’s great. If there’s a price difference, why wouldn’t I?” That’s exactly what we’re doing. It just happens to be with cryptocurrency. Something that I haven’t mentioned is the returns. I’ve mentioned that they’re very strong, but I haven’t actually mentioned the extent of how strong these returns are. Our average annualised return for clients is around 80% per annum since we’ve started, which sounds absurd because in the JSE, you’re lucky if you get five or six, maybe 10%, yet we’re sitting at 80% and the question is how can you be that far above everything else? And it comes down to that limit. The fact that it’s limited. It’s a great way to make low risk, high returns, but limited to a maximum of, call it, R100 000 to R200,000 per person because of those allowance limits.
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